Blow to record export era

IF export volumes and prices are indicative of a state’s prosperity, or otherwise, then life in Western Australia throughout 2022 and 2023 was pretty good.

Iron ore was defying expectations as it climbed as high as $US162 a tonne, filling the state’s coffers with billions of dollars in extra royalty payments.

Oil and gas export earnings boomed in 2022 as the crude oil price climbed above $US100 a barrel and sat above the long-term average of $US71/bbl through to the end of 2023.

The battery metals darlings of lithium and nickel had been on a tear, spurred by rosy outlooks as global decarbonisation efforts gathered pace.

Plenty of dealmaking transpired in the sector as a result, led by rich listers Gina Rinehart and Chris Ellison.

And after a string of years filling grain silos to the brim, the term ‘bumper harvest’ had become the norm.

A Ports Australia report released in August found WA ports generated $233 billion in international trade revenue, almost twice that of the next biggest moneymakers in Queensland and NSW.

But all good things must come to an end.

Warning signs were flashing by late 2023 for some commodities.

And 2024 has provided a salient reminder to WA that the primary industries game is one of swings and roundabouts.

Nickel is now on life support, with just two miners in WA still digging the stuff up, thanks to the rise of Indonesia’s cheap mines backed by Chinese cash.

Outside of BHP, not much optimism remains that Australia can produce the battery metal in a cost-competitive manner.

Not in the foreseeable future, at least.

Lithium has been stuttering, and insiders have mixed views on its recovery timeframe, given the slowing sales of electric vehicles this year.

Iron ore is still strong, but its outlook has deteriorated from last year’s highs amid long-running housing industry pressures in China, including falling demand, developers defaulting on loans, sluggish price growth, and a vast number of unoccupied apartments in some parts of the country.

Beijing has been pumping stimulus into the sector in recent weeks, which has arrested the slide in the iron ore price.

Plenty of pessimism remains, however, about how much an impact this will have beyond the initial sugar hit.

The crude oil price has remained historically strong, but escalating conflict in the Middle East has not created the upward pressure the market is used to.

In September, Morgan Stanley cut its forecast to $US75/bbl due to expectations of weak demand.

And patchy winter rains left WA’s 2023 grain harvest nearly 50 per cent short of the 2022 season total.

With the 2024 harvest now under way, it’s hoped the final figure may come in above the long-term average, but expectations are for a similar haul to last season.

While the above may paint a somewhat negative picture, the money WA’s major exporters are pumping into the state remains healthy.

State data

Treasury WA’s monthly notes make clear the state’s exports have fallen from their peak as prices for most of our commodities retreat.

About $250 billion worth of goods were exported in the year to July 2024, down 0.4 per cent on the year to June.

At its peak in April last year, WA’s annual exports amounted to $272.1 billion, with iron ore accounting for $162.2 billion of that.

The small drop in July this year came despite a strong month for iron ore.

The value of the state’s biggest export for the year to July was $134.2 billion, up 1.7 per cent from the year to June.

Non-iron ore exports dropped 2.8 per cent to $115.8 billion.

WA’s net exports of goods and services accounted for 5 per cent of Australia’s GDP in the 2022-23 financial year, and 56 per cent of the nation’s total exports.

And while mining is king, agriculture is no slouch. Last year, the state shipped $6 billion of wheat, $2.8 billion of canola seed, $1.9 billion of barley, and $1.4 billion of meat and livestock.

Barley exports to China have reached new highs one year after trade tariffs were lifted, and exporters are seeing strong interest from South American brewers, who buy 500,000t of WA barley annually.

Over five years, wheat’s share of WA’s agricultural export pie has grown from 30 per cent to 39 per cent, and canola from 12 per cent to 18 per cent.

CBH is comfortably the largest exporter in this space, handling more than 90 per cent of the state’s grain through Esperance, Albany, Kwinana, and Geraldton.

The co-operative has been joined by Commodity Ag, which this year became the grain export market’s first new entrant in six years, operating out of Albany.

The Alan Richardson-led company is aiming to ship 50,000t of grain per month.

The state government hopes to increasing meat exports, with companies such as Pardoo Wagyu and Craig Mostyn Group working to boost shipments of boxed beef to the UK.

“We want to knock New Zealand or other countries out,” Agriculture Minister Jackie Jarvis said at a recent Dowerin Fields Days lunch.

“The message was, we don’t want to steal your markets, we don’t want to undercut your farmers, we want to undercut everyone else in the world.”

This work will be imperative for the sheep meat sector if it is to overcome the loss of live exports from 2028 due to the federal government ban.

Live sheep exports were up 29 per cent last year to 670,900 head, according to the Department of Agriculture and Food.

That increase was the only one in the past five years and remains below the long-term average.

Education exports, which took a $900 million hit from 2019 to 2021 courtesy of COVID-induced border closures and stay-home mandates, have recovered.

The return of international students lifted the state’s education-related exports to $2.9 billion in 2023, an all-time high.

What’s next

In terms of volumes, WA’s iron ore supply is likely to keep rising.

Rio Tinto, BHP, Fortescue, Mineral Resources and Fenix Resources are expecting to ship a little more of the red rock this financial year than the previous 12 months.

Those five alone could contribute up to 815 million tonnes of iron ore this reporting period, up about 1.5 per cent year on year should they meet the middle of their guidance.

Gold Valley now has rail access to Esperance for its Goldfields rocks, and Mount Gibson Iron will still be churning out high-grade product from Koolan Island for another two or three years.

Citic Pacific has flagged a 33 per cent cut to 14mt at its Sino Iron mine this year due to space constraints.

Uncertainty surrounds the future of that mine due to a legal tussle with Mineralogy over submission of a proposal to extend its life.

Add in privately held Roy Hill and a handful of juniors, and the total iron ore export figure looks to be heading close to 900mt by this time next year.

The value of those volumes, however, is forecast to fall as the price of iron ore retreats to between $US80 and $US90/t.

As much as the Rio Tinto-backed Simandou iron ore mine in Guinea is weighing on commentator sentiment, it is China’s economy the sector most closely tracks.

Declining ore grades in the Pilbara is also a problem: China’s steel mills want to decarbonise, and for that they need a purer product.

It is little wonder the majors are sinking money into projects designed to lift their grades.

In terms of price, anything above $US71/t for 62 per cent fines remains healthy as far as the state economy and the iron giants are concerned.

The mid-and-low tier, however, will no doubt be sweating on the floor being found above those $US80/t finance house forecasts.

For some, anything below $US100/t over the long term is a problem.

Over in the battery metal sector, prevailing market realities are even less stable than for other minerals.

Aside from Glencore’s Murrin Murrin and IGO’s Nova mine, nickel exports from WA are all but dead, and that appears unlikely to change before the end of the decade.

Lithium exports should rise as Liontown and Covalent Lithium ramp up, Pilbara Minerals expands, and the stayers operated by Mineral Resources, Arcadium and Talison keep producing the goods.

What the value of those rocks will be is anyone’s guess, but global brokers appear convinced the bumper prices of recent years won’t be back any time soon.

Morgan Stanley believes a glut of lithium caused by heavy investment in new supply will persist beyond 2030, with ramping up of Talison and IGO’s Greenbushes mine singled out by the broker alongside new supply in China, Chile and Africa.

Goldman Sachs is similarly bearish, suggesting a spodumene price no higher than $US1,155/t by 2027.

Spodumene peaked at $US6,401/t in December 2022.

Elsewhere, Macquarie remains neutral on most ASX lithium stocks.

That sentiment does not appear to be shared by Rio Tinto, however, which recently secured a $9.96 billion deal for Arcadium Lithium.

“Lithium demand continues to grow with electric vehicle sales rising twenty per cent year on year over the first eight months despite slower-than-expected uptake from Europe and the US,” Rio Tinto said in its September quarterly update.

“On the supply side, projects continue to develop, while some closures in Australia and China have also been announced given soft prices, which continued to fall over the third quarter.

“Market fundamentals for lithium remain attractive over the longer term, given increasing EV penetration rates driven by the energy transition.”

Meanwhile, sectors outside of resources are coming to the party.

Medical tech, for example, is growing.

Perth-founded Orthocell has capacity to manufacture 100,000 regenerative medical units per year and is preparing to launch in the US.

REX Ortho, Syngenis, and Marine Biomedical are among a swag over other biomedical companies targeting big export markets.

Award season

Led by David Carter, Austral Fisheries was named WA’s 2024 exporter of the year in September, in addition to being recognised in the sustainability and green economy categories.

Austral has been a key beneficiary of the Australia-UK Free Trade Agreement, which opened of that market to the company’s prized Glacier 51 toothfish.

That product is already becoming a global brand, featuring on the menu of Nobu Restaurant in the US, Qantas’s first-class service, and distributors in Milan, Dubai, and Saudi Arabia.

Banana prawns have also been flowing into the UK since the removal of tariffs, through partnerships with Selfridges and Whole Foods UK, and restaurant group Daisy Green.

Further deals with Ivy Asia Group and Nobu London are on the cards.

Like other commodities, however, low export prices have hindered growth for Austral, which last month told ABC News it was looking at ways to increase tiger prawn sales in Australia due to an oversupply in the international market.

Craig Mostyn Group, Matrix Composites and Engineering, and CBH Group were the other major WA companies to share in the accolades at the WA Export Awards.

Matrix has rebounded strongly off the back of a lean decade, supplying its syntactic foam product to the global deepwater oil and gas market, and developing a strong order book of secured contacts.

Plant-based skincare product company Clean and Pure, resources mapping firm Xcalibur, media migration service Tape Ark, medical researcher Linear Clinical Research, engineer Royal Poly Products, sunscreen manufacturer Avocado Zinc, outfitter Cizzy Bridal, and data software firm acQuire were other category winners at the export awards.

Cizzy Bridal has grown from its base in Perth in 2009 to become one of Australia’s largest wedding dress suppliers with 180 stockists worldwide.

Xcalibur has built a fleet of more than 40 aircraft to undertake aerial mapping services across six continents and more than 1,400 projects.